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East European countries struggle to adapt to free markets.

A few days of cheering and flag-waving to celebrate the end of Communism are likely to be followed by years of difficult adjustment to a new way of life.

Seven Central and East European countries (CEE's) are involved in such a transition--from centrally planned to market-oriented economies.

A significant portion of the changes are occurring in the agricultural sectors of the CEE's. These changes could have substantial impact on trade volume, and therefore on U.S. agriculture, according to analysts in USDA's Economic Research Service (ERS), reports a recent issue of the Agriculture Department's FARMLINE magazine.

They say that ultimately, markets for U.S. farm products should improve as the strengthened economies of the CEE's are able to provide for increased purchases of U.S. commodities. In the immediate future, however, imports are likely to be lower.

The seven countries are Albania, Bulgaria, the Czech and Slovak Federal Republic (CSFR), Hungary, Poland, Romania, and Yugoslavia. They have a total population of about 130 million and a land area of about 280 million acres. This is about half as many people as the United States but less than 10 percent as much land.

Incomes in the CEE's are considerably lower than those of leading industrialized countries, but substantially above many developing countries. Per capita incomes in 1990 ranged from less than $1,200 in Albania to 7,500 in the CSFR.

Long-Term Prospects Favorable

"Longer term growth prospects for agriculture in the CEE's are favorable," says ERS economist Jason Lamb. He adds that the region has good natural resources, but agricultural productivity in several countries is generally low by Western standards, because of poor technology, resource use, and management practices. On the positive side, the CEE's have a labor force that is well educated, trained, and specialized.

Lamb says that farm profitability in the CEE's will continue to lag in 1992, although prospects for agricultural production are relatively favorable.

"Some stability is returning to the region, 2 years after the political and economic upheavals," Lamb says. "Market forces are beginning to work, replacing a system that emphasized planned production targets with no adequate price mechanism."

Farmers, who now make the production decisions, are adjusting to the falling demand for grains and meats. This year slight declines are likely in output of grains and meats, Lamb says. But surpluses are likely, he adds, because as prices rise and demand declines, supplies will still exceed reduced demand.

Imports present another problem for farmers in the CEE's. Under the old economic system, imports were more restricted. Imports now include specialty farm products and a number of products from the European Community (EC) that are of higher quality and better packaged than domestic goods.

Farm prices in the CEE's were significantly depressed in 1991, because of high production and falling demand, Lamb says. Grain production is likely to decline by 5-10 percent this year, if normal weather conditions prevail, he says.

Livestock inventories have continued to decline, but low feed prices have cushioned the blow for producers. More decreases in livestock production are likely in 1992, Lamb says.

Governments Still Play a Part

Government actions seeking to balance supply and demand are underway in some of the CEE's. In Hungary's dairy industry, for example, the export subsidy for milk has been raised and the domestic producer price reduced, the government is purchasing subsidized milk for the poor, and producers have agreed to reduce output in return for a premium on the slaughter of milk cows.

Hungary, Poland, and the CSFR have made efforts to recapture old markets in the former Soviet Union and to find new ones in the West, Lamb says.

A shift to a hard-currency basis for Soviet trade in January 1991 led to bartering agreements by several of the CEE's. Hungary is exporting wheat, wine, beef, and pork under such arrangements. The CSFR is attempting to barter meats, wheat, butter, and powdered milk to the Russian Republic in exchange for oil, chemical products, and other raw materials. Poland has an agreement with several former Soviet republics to trade potatoes, apples, and onions for natural gas.

"The key question facing CEE farmers this year is how to respond to price reforms," Lamb asys. If production is not cut sufficiently, prices could continue to fall, he adds.

Farmers have sought government assistance to counteract low prices, but significant intervention is unlikely because of falling revenues and strict fiscal policies imposed by international assistance agencies, Lamb says.

Region's Imports To Drop

U.S. agricultural exports to the CEE's are expected to fall in fiscal 1992 to about $250 million, according to ERS analyst Stephen MacDonald. That total would be less than half what it was 2 years earlier, but the former East Germany is no longer included since its reunification with the former West Germany.

The expected drop this year is due to good harvests last year and declining demand in most of the CEE's, plus a lack of hard currency needed to buy U.S. products. U.S. credit guarantees and food aid programs could help alleviate the effect of the hard currency shortage to some extent, MacDonald says.

Surpluses of grains, meats, and dairy products in several of the CEE's mean that imports of these products will be minimal this year, MacDonald says.

Thus the outlook for U.S. agricultural exports to the CEE's is not good in the short run, ERS analysts say, but should improve in future years as the economies in these countries improve.
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Publication:Frozen Food Digest
Date:Jul 1, 1992
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